Ten years ago, University of Louisville officials envisioned a research hub on Market Street, near the school's Health Sciences Campus. But the marquee building bears little resemblance to the original plan.

Friday, April 7th 2017, 6:21 pm EDT by Chris Otts

Updated:

Sunday, April 9th 2017, 9:43 pm EDT

LOUISVILLE, Ky. (WDRB) – Three years ago, when Ankur Gopal was looking for office space for his fledgling software company, Interapt, he quickly set his sights on the $20 million building that the University of Louisville Foundation was putting up on the corner of Market and Floyd streets.

Gopal said he bought into the vision U of L officials had established for the 8-story structure once called “The Nucleus” – a place where start-up companies would trade ideas and strategies with each other, and with university scientists and researchers.

“We wanted to be in that building because we wanted to be around other entrepreneurial, innovative companies,” he said.

Interapt ended up sharing space with XlerateHealth, a nonprofit organization that helps early-stage health care companies get established. About 30 start-up firms cycled through XlerateHealth’s “boot camps” at the building, while Interapt garnered publicity and gained new clients.

But today, leaders of U of L and its nonprofit foundation acknowledge that the building – while fully leased – has fallen short of its original goal of nurturing new businesses, especially ones emanating from research on the university’s nearby Health Sciences Campus.

“The use of the building today is not consistent with the mission of the university; it’s not consistent with the mission that was laid out at the time the building was envisioned,” Greg Postel, U of L’s interim president, said during a U of L Foundation board meeting on March 14.

Atria Senior Living, a nursing home company, now rents more than half of the square footage in what has been renamed the Atria Support Center. The company announced in 2013 that it would move its corporate headquarters and about 250 employees from an office tower less than a mile away in Louisville’s CBD.

The foundation has filled the rest of the building, at 300 E. Market Street, with various offices and affiliates of the university, who pay rental rates far higher than what is charged to Atria, according to the building’s leases, which were obtained by WDRB News in public records requests.

When Atria was announced as the building’s anchor tenant in 2013, former U of L President James Ramsey said the move was still in line with the “innovative” mission of the building.

But late last year, XlerateHealth and Interapt moved out of the building, as they were no longer able to get a subsidy for the top-dollar rent. Atria took over their second-story space. Now the only other private company is Advanced Cancer Therapeutics, whose future is uncertain.

Even though they amounted to only 2 percent of the building, XlerateHealth and Interapt’s presence was one of the few instances in which the property resembled the entrepreneurial hotbed that U of L officials described going back to when the building was first planned a decade ago.

The building today amounts to “just ordinary Class A office space” – placing the university foundation in competition with other downtown office buildings for tenants, Postel said.

In fact, University of Louisville Physicians, the university doctors group that rents two floors of the building, is only there because the foundation couldn’t find other tenants for the space, said Postel, who was CEO of U of L Physicians until January 2016.

“We were actually asked to move into that building because it wasn’t fully rented, and so we didn’t have a lot of choice,” Postel told the foundation board last month. “We moved in there, and it’s a lovely building, but it’s expensive, and we could be anywhere.”

Foundation still gets city, state dollars under TIF deal

Yet, even as U of L leaders acknowledge the deviation from the building’s mission, the foundation has still collected nearly $20 million in economic development incentive money from state government and Metro Louisville since 2011, in part to help pay for the project.

Under a 2007 deal with the city and state, the foundation gets a share of the new taxes generated in a 30-block area surrounding U of L’s Health Sciences Campus, including the Atria building:

Though Atria was less than a mile away at Brown & Williamson Tower, moving the company and its employees helped boost the tax revenue on which the foundation gets payments from the city and state.

Larry Hayes, who was the state’s economic development secretary from 2009 to 2014 under former Gov. Steve Beshear, said in an interview that the special taxing district “wouldn’t have been approved” had officials known how the building – the centerpiece of the plan – would eventually turn out.

“It was never envisioned that it was going to be just Class A office space that was going to go on the market in competition with others,” Hayes, also a former U of L trustee, said in an interview last week. “The idea was… you bring in more jobs. You bring in more investment – not to just rent new space and vacate existing space.”

Jason Hancock, an official in Lindauer's office, said the property no longer qualified for the nonprofit exemption because of its use as an office building and because there is not a clear link showing proceeds from the structure going to U of L's educational mission. The foundation re-applied for an exemption following Lindauer’s decision, and the dispute may end up before the state’s tax appeal board.

Atria, for its part, said the decision to move to the building “deepen(ed) our commitment to the city of Louisville” and has led to job growth. The company now employs 300 in the building, up from 250.

“As our company grows, we have continued to invest in our leasehold and expand our space, creating more jobs for Louisville residents in the process,” Regan Atkinson, an Atria senior vice president, said in a prepared statement. “We are proud of the modern space that we have built here at the Atria Support Center, and what it allows us to do as a senior housing company serving more than 21,000 residents.”

Keith Sherman, the U of L Foundation’s new interim executive director, said the organization always complied with the requirements of the so-called “tax-increment financing,” or TIF, under which city and state taxes get diverted to the foundation.

“It was drafted in a way that clearly, anyone moving and, I guess -- even shuffling the deck a little bit downtown -- would qualify for revenue,” said Sherman, who started with the foundation in December.

He added the foundation is now working with Mayor Greg Fischer’s administration to “live up to the spirit” of the agreement by steering “health sciences and life-sciences-type” companies, as well as startup businesses, to the Atria building.

A hub for “life sciences” ventures

A decade ago, U of L pitched the building as the first of several “research” facilities on the old Haymarket block, a former outdoor produce market bounded by Market, Jefferson, Floyd and Preston streets.

The idea was to create a place where work by researchers at U of L’s nearby medical school would result in the creation of “life sciences” businesses.

“It will make Louisville the place where today’s medical miracles become tomorrow’s entrepreneurial success stories,” then-Gov. Ernie Fletcher said at a 2007 press conference announcing the creation of the special taxing district, according to a Courier-Journal story from the time.

The foundation then created a subsidiary called Nucleus to oversee the project. Nucleus is now “pretty much dormant,” the foundation’s attorney told the board at the March 14 meeting.

By the time the building was finished in 2013, Hayes recalled that U of L officials had shifted its focus to becoming a hub for companies, like Atria, involved in “aging care” – another economic development niche for the city.

In a further broadening of the scope, the foundation in 2014 renamed the block where the building sits the J.D. Nichols Campus for Innovation and Entrepreneurship.

Nichols, who pledged a $10 million gift, is the chairman of NTS Corp., which has gone into business with the foundation on a number of real estate projects. NTS is the foundation’s broker and property manager for the Atria building, and NTS co-owns the adjacent parking garage with the foundation.

U of L tenants pay higher rent

While Atria moved into the building in 2014, the company did not start paying rent until last fall after getting the first two years of its 17-year lease for free, a concession worth nearly $2.6 million, according to the company’s lease, obtained in an open records request.

Leases also show that the foundation charges U of L’s own tenants – U of L Physicians, the university’s Executive Vice President for Research and U of L’s Institute for Sustainable Health and Optimal Aging – significantly higher rental rates than Atria.

Those tenants, as well Advanced Cancer Therapeutics, a company with ties to U of L, all pay over $20 per square foot for their space, a rate that Atria won’t pay until the 16th year of its lease, around 2030.

To be sure, none of those tenants has leased as much space as Atria, nor signed on for nearly as long a term. Brian Lavin, NTS’ CEO, did not return a call for comment last week.

But in a promotional material obtained by WDRB, NTS said it managed to land Atria as a major tenant in the midst of “one of the worst downtown office market periods in decades.”

Atria’s lease starts at $15.25 per square foot. The average asking price for “Class A” – or high-quality space like the Atria building – has hovered around $20 per square foot since 2013 in downtown Louisville, according to real estate brokerage firm JLL.

The only reason that XLerateHealth, the nonprofit promoting start-ups, could afford space in the Atria building is that a state grant paid the vast majority of the rent, said Bob Saunders, a venture capitalist who chairs the organization.

“We went there when they were desperate to find tenants for the building, to find ways to fill the space,” Saunders said.

Saunders said he’s now looking for a “funky, down-market” space with cheap rent around the NuLu area. In others, he said, a space “specifically designed for entrepreneurial enterprises.”